By Teresa Rivas

Quantitative funds tend to do well when stock markets are steady, as company fundamentals– scrutinized by their models–tend to herald where stocks are headed most reliably in calm environments.

However, when markets aren’t calm, these strategies can fall apart. Case in point is the Bridgeway Small-Cap Growth (BRSGX), writes Morningstar’s Greg Carlson (subscription required). The fund beat more than 90% of its category peers in the trailing three- and five-year periods, thanks to steadily rising markets, but lagged during the bear market of October 2007 to March 2009 and missed out when stocks shot up after the March 2009 bottom. Overall, that means the fund actually underperformed 90% of its peers during the past decade, despite its recent hot streak.

Not surprisingly, however, that recent outperformance for quant funds has drawn investors and the typical fund in Morningstar’s list saw net inflows for the year ended February—a notable achievement given that investors have been turning away from actively managed strategies. Two big winners from the group include the Managers Behavioral Value (UBVLX) and American Beacon Bridgeway Large Cap Value (BRLVX).

The Vanguard Strategic Equity Fund (VSEQX) is the largest fund on the Morningstar list, with $5.4 billion in assets, but Carlson prefers other options:

T. Rowe Price QM U.S. Small-Cap Growth Equity (PRDSX) (rated Silver) has been managed by Sudhir Nanda for nearly a decade and turned in remarkably consistent results, in part because of the small weighting given to its momentum model in the process. Vanguard Market Neutral (VMNFX) (Silver) has a big cost advantage over rivals–it charges 0.25% annually while its typical no-load market-neutral peer charges 1.50%. AQR Large Cap Momentum Style (AMOMX) (Bronze) has its risks, namely hefty exposure to momentum factors and high portfolio turnover that elevates transaction costs and can lead to significant taxable distributions. However, both it and AQR Large Cap Multi-Style (QCELX) (Bronze), which mixes momentum factors with valuation and profitability measures, are run by a veteran team and have well-below-average fees. Columbia Disciplined Core (AQEAX) (Bronze) boasts a prudent tilt toward higher-quality fare and strong results. And Vanguard U.S. Value (VUVLX) (Bronze) has beaten its benchmark handily thanks to disciplined, small bets and low fees.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.